Construction Industry Barometer Q4 2013

‘The State of the Industry’Construction Market Barometer

February 2014

Prepared by Leading Edge Management Consultancy in association with

Chartered Institute of Marketing's Construction Industry Group (CIMCIG)

Construction News

Contents

1. Introduction

2. Executive summary

3. Key findings

4. Detailed findings

5. Sample size & methodology

1. Introduction

� The Construction Market Barometer is produced by Leading Edge Management Consultancy in conjunction with the Chartered Institute of Marketing's Construction Industry Group (CIMCIG) and Construction News

� The barometer has been running on a quarterly basis since 2008 Q1 and is completed by senior directors and managers working for companies across the construction industry supply chain

� The aim of the barometer is to provide insights into how the construction industry is performing in terms of sales and market conditions and to find out what is happening to marketing budgets and recruitment

� Background to the authors

� Leading Edge - specialise in market research, analysis, forecasting & marketing strategy in the construction and building products industries. www.lead-edge.co.uk

� CIMCIG - work to raise the status of the marketing profession within the construction industry. www.cimcig.org

� Construction News – provide construction industry news and insights. www.cnplus.co.uk

� To find out more about the barometer please contact Nick Hollaway at Leading Edge:

[email protected] Tel: 01252 279990.

2. Executive summary

Marketing focus & strategic outlook

Conclusions from research

� The outlook over the next 12 months continues to remain positive for many companies’ marketing departments:o 69% are set to grow their marketing spend, with the lowest number recorded since the survey began expecting to make cuts (4%)

o 62% expect to see no change in their marketing headcount, with 33% of companies expecting to make increases.

� There are four strategic areas that are now considered to be more important than they were 12 months ago:o Recruiting staff / training & retention of best staff (175% increase in the number of responses)

o Breaking into new markets / regions (89%)

o Reviewing company’s strategy (40%)

o Managing cost rises (39%)

� ’Winning new work’ remains top of the strategic agenda. However, the increase in the number of businesses focusing on ‘recruitment, training & retention of staff’ compared to 12 months ago indicates that companies’ resources are continuing to be stretched by the upturn in activity

� When asked which barriers would prevent them from winning work over the next 12 months, 62% of companies said it would be due to ‘aggressive tendering from competitors’. 46% cited a lack of resources to meet demand

The outlook

� The positive results over the last 9 months indicate that the recovery continues following the low point of Q1 2013, Encouragingly, 70% of marketing budgets are set for growth as increased demand drives investment in marketing spend

� Construction companies remain concerned that the level of ‘aggressive competitor activity’ and the loss of so many key personnel during the downturn is now stretching almost half of companies resources as activity picks up.

Sales performance & the market outlook


� Sales performance has now improved for four straight quarters, with 79% of companies improving their sales in Q4

2013, compared with the same period in 2012. The figure last quarter was 76%

� 79% of companies are positive about their sales performance for the next 6 months. This is the highest ever figure

and indicates increased optimism

� The new build housing market continues to lead the growth in the industry, although the rate of growth slowed in

Q4 2013. Encouragingly, the outlook in all 4 of the main sectors has improved with the new non-housing sector

showing the greatest improvement over the last quarter

� The North / South divide remains, with London and the South East set to deliver the greatest increase in sales for

companies over the next 6 months. However, the outlook for the Midlands the Northern regions and, in particular,

Scotland has improved when compared to last quarter

The outlook

� This quarter delivered the best growth in year on year sales since the survey began and also a record positive level

of expectation about sales and market growth for the next 6 month period. With the private commercial sectors

starting to drive growth alongside the new housing market, the outlook for 2014 is more positive

� The regional outlook for the areas away from the South East and London continues to improve, following years of

decline as investment levels dried up. This offers more opportunities for companies to grow their sales across GB.

Capitalising on the upturn


� 86% of companies indicated that they are in a ‘good’ or ‘very good’ position to take advantage of the forecast

upturn in construction activity during 2014

� To help drive further growth in construction activity, companies indicated that they want the UK Government to:

o Work harder to secure private investment to finance major projects (56% of companies mentioned this area)

o Do more to identify a forward pipeline of projects so the industry can plan and invest (48%)

o Streamline and shorten the obstacles to obtaining planning approval (42%)

o Invest more in skills and training - eg apprenticeships (35%)

� Alongside this, companies are looking for trade and industry bodies to assist them with a number of areas to help

ensure a sustainable recovery. The main areas include:

o Helping to attract talent into the industry to ensure demand can be met long-term

o Help educate clients to focus on ‘life time’ value rather than ‘lowest build cost’

o Lobbying government with a ‘single voice’ to help remove planning approval and procurement barriers and produce a

better investment pipeline of projects for the industry

o To encourage greater and more effective use of apprentices in the industry

o To encourage more collaboration in the supply chain to deliver a better product and service

The outlook

� The majority of companies appear to be in a position to take advantage of increased construction activity. However,

without the support of the Government and trade / industry bodies in a number of key areas it will be difficult for

companies to take full advantage of the opportunities available.

3. Key findings

Sales Comparison OverviewThe average sales increase recorded its highest ever figure (+7.4) since the survey began in 2008 Q1, continuing the upward trend which started in Q1 2013

The Sales Comparison Index shows the average % change in sales for all responses, compared to the corresponding quarter from the previous year.

Note: No survey figures available for Q2 2010

-2.1 -2.2

-3.2

-7.5

-10.1

-12.0

-6.6

-4.4

2.0 1.7

3.22.4

4.8

2.33.1

1.4

-0.2

0.9

-1.0

0.3

4.25.3

7.4

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2008Q1

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

Av

era

ge

% c

ha

ng

e

Sales Outlook IndexThe index recorded its highest ever level in Q4 2013 (63.4), as companies indicate increased optimism about the next 6 months

The Sales Outlook Index is the difference between the % of companies who have an improved sales outlook minus the % that havea declining sales outlook for the next quarter.


5.9

-21.8

-32.8 -31.4

2.6

26.7

14.8 16.0

40.0

0.0

38.3

27.832.2

4.0

20.4

35.0

27.0

-10.0

15.8

21.0

45.1 41.4

63.4

-50.0

-30.0

-10.0

10.0

30.0

50.0

70.0

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

Ind

ex

fig

ure

Marketing Spend OutlookThe average % change remained stable in Q4 2013 at +4.5, indicating a more positive outlook for marketing budgets over the next 12 months

The Marketing Spend Index shows the average % change in marketing spend for all companies over the next 12 months, compared to the previous 12 months.


-1.6

-4.0 -4.2

-8.5

-10.3-10.8

-2.1

0.7

-1.2-0.6

1.0

-1.0

1.2

-0.1

0.10.7

-1.5

-0.1

-2.1

0.6

1.7

4.6 4.5

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

2008Q1

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

Av

era

ge

% c

ha

ng

e

Marketing Headcount Outlook Index Marketing headcount expectations continued to remain positive, recording another relatively strong figure (+26.9)

The Marketing Headcount Outlook Index is the difference between the % of companies who are looking to increase their marketing headcount over the next 12 months, minus the % that are reducing their headcount.


-13.3

-24.1-19.4

-30.7

-19.5

3.4

11.5

20.8

16.0

37.9

27.8

25.5

-4.0

7.412.0

-4.0

0.0

-9.0

7.0

14.0

28.026.9

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

2008

Q2

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

Ind

ex

fig

ure

Strategic Issues’Winning new work’ remains top of the strategic agenda. The sharp increase in the number of businesses focusing on ‘recruitment, training & retention of staff’ compared to 12 months also continues over from last quarter. ‘Managing cost rises’ and ‘breaking into new markets or regions’ are also key issues

Cells in green indicate a strategic issue is now significantly more important than it was 12 months ago, with cells in orangeindicating a fall in importance.

Note: table contains rounding errors

Multiple responses allowed.

Strategic issues

% of respondents

selecting responses -

Q4 13

% of respondents

selecting responses -

Q4 12

% change year on year

- number of mentions

Winning new work 58 46 24

Recruiting staff / training & retention of best staff 44 16 175

Managing cost rises 42 30 39

Breaking into new markets / regions 40 21 89

Managing cash flow 31 NA NA

Reviewing company’s strategy 25 18 40

Managing impact of more aggressive competition 25 36 -30

Increasing marketing effort to win more work 23 21 8

New product development 21 20 8

Focusing on core business 19 32 -40

Managing the impact of falling margins 14 38 -64

Key supply chain members going into administration 14 NA NA

Managing the impact of falling market prices 12 27 -57

Adapting the business to falling market demand 2 27 -93

Ability to source building materials & equipment 2 NA NA

What are the main strategic issues facing your company over the next 12 months?

62%

46%

32%

24%22%

12%

10% 8%

6%

2%

0%

10%

20%

30%

40%

50%

60%

70%

Aggressive sub-price tendering

from competitors

Lack of resourceto respond tomarket / client

demand

Length of time /resource required

on pre-qualification

process

Not on clients'core list of

suppliers / notwinning places on

frameworks

Lack ofestablished

reputation in newmarket(s)

Not yet adoptedBIM

Core marketsshrinking in size

None - we are notfacing any barriers

Ability to raisefinance

Unable to offer'whole-life' service

% o

f re

sp

on

se

s

What barriers is your company likely to face when trying to win work over the next 12 months?

Barriers to Winning Work’Aggressive tendering from competitors’ continues as the main barrier that companies face when trying to win work. The number of companies indicating that a ‘lack of resources’ is likely to hold them back remains the second most mentioned area. Almost a third cited the resources required to pitch for work as a barrier


Other issues mentioned included; strategic changes to national merchants buying policies, clients looking only at cost price and not whole life costing, material and labour price rises.

4%

0%

10%

39%

47%

0%

10%

20%

30%

40%

50%

1 - poorly positioned 2 3 4 5 - well positioned

% o

f re

sp

on

se

s

On a scale of 1 - 5, please can you rate how well positioned your company is to take advantage of the predicted upturn in construction activity in 2014 -

where 1 is poorly positioned and 5 is well positioned?

Company Sentiment on the Upturn86% of companies say that they are in a ‘good’ or ‘very good’ position to take advantage of the forecast upturn in construction activity during 2014

The average score across all responses is 4.3 out of 5.

Question new to report - Q4 2013.

“We have been building for this since the down turn in 2008/09. We quickly adapted then and will now.” – Manufacturer

56%

48%

42%

35%

31%

19% 19%

8%

0%

10%

20%

30%

40%

50%

60%

Work harder to secureprivate investment tofinance major projects

Do more to identify aforward pipeline of

projects so the industrycan plan and invest

Streamline and shortenthe obstacles to

obtaining planningapproval

Invest more in skills andtraining - eg

apprenticeships

Reduce the VAT rate onrepair and maintenance

work

Focus on making theGreen Deal work and

promoting it moreeffectively

Despite the growingdeficit, raise public

capital spending levels -eg education, health

Nothing (thegovernment is doing all

it can at this time)

% o

f re

sp

on

se

s

In 2014, what actions should the government take to support growth in the construction industry?

Government Support Required for the Industry56% of construction companies want the Government to ‘work harder’ to secure private investment into the industry and almost half want more clarity on the forward pipeline of work to help them plan

“Don’t limit public sector funding to completion of projects by a specified date. It means that bids are rushed and there is an oversupply of projects followed by an undersupply.“ - Contractor

Multiple responses allowed


“Look at procurement, since the East Coast debacle. ‘Procurement Professionals’ and the complex and inflexible processes they apply have become one of the biggest threats facing construction contractors.” -Contractor

Trade Body Support for Construction – comments from the industry

“Encourage and publicise the benefits of collaboration and supply chain involvement in driving down prime costs and enhancing value.” - Contractor


What main activities would you like to see industry and trade bodies focusing their efforts on to help drive

growth in construction industry in 2014/15?

“Encouraging companies to prepare for the upturn so they can hit the ground running. Encourage companies to review their use of assets and be proactive and creative in satisfying their customers’ needs rather than just cutting cost all the time. Encourage more and effective use of apprenticeships.” - Architect

“Lobbying, with one voice, for a more streamlined planning process, and a proper strategic plan for infrastructure. Improving service from Statutory Authorities, who are completely unaccountable for their poor performance - it's a complaint on every site.” - Contractor

“Training and apprenticeships are key. Lobbying government to improve spend in building as well as infrastructure. Promote grant funding to help future projects get off the ground.” - Contractor

“Stricter application of appropriate UK specification standards allowing manufacturers who invest in the required quality and product standards to recover the outlay. Attract real talent into the industry to make it more dynamic and ambitious. This needs a joined up programme of making the industry attractive and offering rewarding careers.” - Manufacturer

“Cutting through the myriad of new legislation and giving clear and simple guidance. Lobbying for 'whole lifecycle' costings of buildings, not lowest cost suppliers or the industry will continue to be driven by lowest cost solutions that deliver poor quality buildings that are costly to maintain and control.” -Manufacturer

4. Detailed findings

2% 2% 2%

6%

10%

21%

23%

25%

10%

0%

5%

10%

15%

20%

25%

30%

<-20% -20% to -11%

-10% to -6% -5% to 1% 0% - flat 1% to 5% 6% to 10% 11% to 20% >20%

% o

f re

sp

on

ses

How has your company’s overall sales volume changed over the Q4 period (Oct – Dec 2013) compared with the same period in 2012?

Sales Volume79% of companies improved their sales in Q4 2013, compared with the same period last year, an increase on last quarter’s figure of 76%

“The company is getting bigger, doing better, selling more products and we're introducing new products to the UK and Irish market.” – Manufacturer

Note: Table contains rounding error.

“We have focused our efforts on achieving sales with a sustainable profit rather than chasing turnover.” –Contractor

4%

12%

6%

56%

23%

0%

10%

20%

30%

40%

50%

60%

Very unconfident Fairly unconfident Neither - flat Fairly confident Very confident

% o

f re

sp

on

se

s

How confident are you that your overall sales performance will show signs of growth over the next 6 months?

6 – 12 Month Outlook79% of companies are positive about their sales performance for the next 6 months, an increase from the Q3 figure of 63%

“We are winning incremental export contracts and our UK trade base are being fairly bullish about their prospects for 2014. Whilst still very fragile there is a growing confidence that the growth seen in Q4 2013 will extend into at least the next two quarters.” –Manufacturer

“We see a good deal more activity in the architects, engineers and developers offices.” –Contractor

4.9

4.64.4

3.5

7.0

3.6

4.4

3.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

New housing New non-housing Repair & maintenance non-housing

Repair & maintenancehousing

Av

era

ge

% c

ha

ng

e i

n g

row

th

Total construction output in 2014 is expected to be 3 - 5% higher than in 2013. In terms of activity, what do you estimate will happen to your core markets over the next 6 months,

when compared to the previous 6 months?

Average - 2013 Q4 Average - 2013 Q3

Forecast Sector ImpactThe new build housing market continues to lead the growth in the industry, although the level of growth has slowed. Encouragingly, the outlook for the new non-housing sector has improved

The figures shown in the table represent the average % change of all the responses received for each sector.

“Housing starts are increasing and non-housing prospects are improving dramatically.” –Manufacturer

8.0

5.6

3.9

3.63.2

7.3

5.6

1.9

2.8 2.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

London East and South England(excludes London)

Scotland North England (includesYorkshire)

Midlands & Wales

Av

era

ge

% c

ha

ng

e i

n s

ale

s g

row

th

In terms of sales, what do you expect to happen to the regions in which you operate over the next 6 months, compared to the previous 6 months?

Average - 2013 Q4 Average - 2013 Q3

Forecast Regional ImpactCompanies have a more positive or similar outlook in every region, compared to last quarter, although London and the South East continue as the main drivers of sales growth

The figures shown in the table represent the average % change of all the responses received for each sector.


“I believe London and the South East are better funded than other areas. The M62 corridor is another well funded area.” - Manufacturer

0%

2%2%

0%

28%

33%

24%

6% 6%

0%

5%

10%

15%

20%

25%

30%

35%

<-20% -20% to -11% -10% to -6% -5% to 1% 0% 1% to 5% 6% to 10% 11% to 20% >20%

% o

f re

sp

on

se

s

What do you predict will happen to your marketing spend for the next 12 months, compared to the previous year?

Marketing Spend Outlook69% of companies are looking to grow their marketing spend over the next 12 months, with only 4% expecting a decline. This continues the positive scores recorded in the last survey

“We have a steady increase to meet the company's demand to raise awareness of brand and better fulfil customer demands.” –Manufacturer

“Better company performance will release expenditure from group to promote the brand in the construction industry.” –Manufacturer


“Pressure on overheads due to reduced sales preventing mass marketing - more focused / strategic marketing strategy employed to maximise ROI.” –Contractor

2%4%

62%

29%

4%

0%

10%

20%

30%

40%

50%

60%

70%

A major cut back in

headcount

A small reduction in

headcount

No change A small increase in

headcount

Increasing headcount

a lot

% o

f re

sp

on

se

s

Will you be increasing or decreasing the size of your marketing function in the next 12 months?

Marketing Headcount Outlook62% of companies expect to see no change in their marketing headcount, with 33% of companies expecting to make increases


“We are adding dedicated resource to drive our innovation programme having stood still for a couple of years.” – Manufacturer

“Department needs considerable growth, but this will happen steadily. ROI is always in consideration.” -Manufacturer

5. Sample size & methodology

Respondent profileThe survey achieved a mix of respondents (52) from across the construction supply chain

The data was collected through an on-line survey during January and February 2014.

The majority of respondents are senior directors, marketers, product managers or involved with business development.

Respondent split % split

Manufacturer 42%

Contractor 40%

Architect, consulting engineer,

project manager, developer 12%

Supplier / Distributor 6%

Total 100%

Public & Private Sector mix69% of the companies represented in the survey are active in both the public and private sectors

Construction Sector Split23% of the companies taking part in the survey work across or supply all the main construction sectors


90%

81%

69% 69%

65%60% 58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Commercial

(including

offices)

Education Retail &

Entertainment

Housing Health Infrastructure /

Civils

Industrial

% o

f re

sp

on

se

s

Which sector(s) does your company pre-dominantly work in?

Leading Edge -Delivering a better understanding of customers and markets

www.lead-edge.co.uk

Construction Industry Barometer Q4 2013

Business

secure private investment

managing cost rises

work remains top

finance major projects

sample size

housing repair

respondents selecting responses

sales outlook index